Tag Archive for: real estate values

Climate-Related Risks Could Reduce Real Estate Values by $1.4 Trillion in Next 30 Years

2/4/25 – First Street Foundation released a new study today as part of its 12th National Risk Assessment. “Property Prices in Peril” estimates that real estate values could lose $1.4 trillion over the next 30 years due to climate-related risks. That number is unadjusted for inflation.

First Street specializes in climate risk financial modeling. Its clients include financial institutions, companies and governments. The organization announced the research in a webinar this morning. I will summarize it below.

Summary of Research

The basic premise: Homeownership has long been the primary pathway to wealth creation in the U.S. Prospective homeowners decide where to live by balancing quality of life and cost of living. That drives home value increases and decreases.

Crucial Role of Insurance Costs

But climate change is now causing many to recalibrate that value proposition as insurance costs now represent a higher proportion of mortgage costs than ever before. And First Street predicts premiums will continue to rise until they become actuarily sound.

Projected insurance increases

The First Street presentation began with several slides on insurance rates and factors affecting them (losses, predicted risk increases, government regs, etc.). In some areas, monthly insurance payments could soon comprise 25% of total home payments. First Street predicts that…

Huge increases in insurance premiums will drive up the cost of home ownership and make homes in risky areas less affordable for many.

In addition, money paid out to insurance companies does not appreciate like the home itself does. As a consequence, a lower percentage of a family’s total income will be available to build wealth from home ownership in the future.

Diagram showing main influences of flooding on property value
Diagram showing how climate change and insurance rates affect home values and demand
Secondary Impacts

Further, the authors found that “The implications for local economies extend far beyond direct housing market effects to regional GDP, household financial stability, and public services.”

“Communities facing declining property values due to climate risks confront multiple economic threats,” says First Street. “Falling home equity reduces household wealth and borrowing capacity, constraining consumer spending and local economic activity.”

“Lower property assessments significantly impact state and local government revenues, with property taxes accounting for over 30% of local government funding nationwide. This reduction in revenue can trigger a vicious cycle, where limited funds hinder investments in critical climate adaptation infrastructure just when it is most urgently needed— further exacerbating the decline in property values.”

“States like Texas and Florida, which rely heavily on property taxes due to their no-income-tax structure, are increasingly exposed to fiscal risks as climate change threatens their tax base by impacting property values.” 

Flooding Most Widespread Risk

“Flooding will emerge as the most geographically widespread driver of climate migration, leading 11.9 million Americans to relocate by 2055,” says the study.

“This migration pattern affects every region of the U.S., from coastal communities facing sea level rise and storm surge to inland areas facing fluvial flooding from rivers and streams to urban areas subject to pluvial flooding from heavy rainfall events,”

First Street projections indicate that “over one-third of U.S. counties and more than half the population are exposed to frequent, chronic flooding from precipitation alone.”

Effects of Climate Migration Most Apparent in Small Areas

Instead of looking at national and state trends, the First Street study looked at every census tract in the county. It found that housing choices at that micro-economic level are increasingly being driven by awareness of climate risks such as flooding.

Five Market Segments Illuminate Different Climate-Migration Patterns

Looking forward, First Street modeling segments neighborhoods into five categories:

  • Climate Abandonment – 26% of neighborhoods/census tracts, show sustained population loss due to climate change.
  • Risky Growth – 31% of neighborhoods continued to grow despite high risk, suggesting other strong economic or social drivers.
  • Tipping Point – 27% of neighborhoods show initial growth followed by decline as rising insurance premiums and climate impacts reach unsustainable levels.
  • Economic Decline – 11% of neighborhoods lose population despite low risk and stable insurance rates, suggesting economic factors, not climate, are driving decline.
  • Climate Resilient – 5% of neighborhoods attract population growth with low risk and stable insurance rates.

The study found five counties in Texas fell into the “risky growth” category: Fort Bend, Denton, Williamson, Travis and Montgomery.

For More Information

To learn more, visit the First Street Foundation website where you will find links to:

Rehak’s Take

All in all, the authors made an excellent case for “climate caution.” That in itself could affect migration and home prices.

But the study did not address many of the factors that have made Texas one of the fastest growing states in the country, despite the fact that more people live in Texas floodplains than live in 30 states.

For instance, the study did not take into account immigration or variation in tax rates compared to other states.

I’m also a bit skeptical of any study that tries to project current trends 30 years into the future. Fifty years dealing with market research taught me how quickly trends can change.

Despite those concerns, the study makes excellent reading. It also makes a valuable contribution to our understanding of flooding and how it could impact the future of the Houston region.

Posted by Bob Rehak on 2/4/25

2716 Days since Hurricane Harvey

How Parks and Green Spaces Improve Real Estate Values

When I ran last week’s post about Harris County’s new Edgewater Park, I got pushback from several people who feared more green spaces could bring in outsiders and create traffic woes.

Value of Green Spaces in Reducing Flood Damage

Since Harvey, hardly a day goes by that we don’t read about the value of parks and green spaces in protecting us from flooding. So I was surprised at the resistance. How many more homes would have flooded in Kingwood had it not been for greenbelts and parks along the east and west forks? Google Earth shows approximately 3200 acres currently used for golf, parks and greenbelt trails in Kingwood. When floods recede these areas usually require little more than some extra maintenance.

Even after Havey, the repair costs for all of Kingwood’s parks put together was less than one home that I know of near the river.

Plus, consider this. Had you divided those 3200 acres up into typical quarter acre lots and put a home on each, 12,800 additional homes would have flooded. Every single one. And if each suffered a quarter million dollars worth of damage, the total would have exceeded $3 billion dollars.

Kingwood and Forest Cove: 4X the Recommended Green Space

Kingwood and Forest Cove are exceptional in the amount of green space that we have per household. About 20% of our acreage is in parks, golf courses or greenbelts, something that makes us especially attractive to active, younger families with children. It’s one of our distinguishing characteristics and most attractive features.

Many cities cannot reach the minimum of 10 acres of park space per 1,000 residents recommended by the National Recreation and Park Association (NRPA).  Kingwood has four times that! Truly, we were blessed by a visionary developer.

Floods Negatively Impact Price

Floods clearly affect home values in a negative way. A study of 8000 homes in a flood-prone area of North Carolina after Hurricane Floyd in 1999 confirmed this. It found that homes outside of a flood plain had a higher market value than equivalent homes inside the flood plain. Further, the price discount for homes inside the flood plain was significantly greater immediately after the hurricane.

Proximity to Parks Positively Impacts Price

But what is the correlation between home values and proximity to parks. Does the proximity help or hurt (as some people suggested)?

There’s been a fair amount of research on this subject. When I googled it, the search returned 330 million results. Seriously! I scanned the first five pages. Luckily, there seems to be consensus. The answer is, “Yes, there is a positive correlation.”

Would you pay extra to live close to this? Studies show most people would.

Some of the landmark studies on this subject were conducted at Texas A&M. One by John Crompton in 2001 reviewed 30 scholarly articles and found that abutting a passive-use park, such as East End, had a 20% positive impact on property values. Crompton also found that abutting active-use parks (such as ball parks or soccer fields) with large numbers of users had little discernible impact, but that properties a block or two away experienced a 10% bump.

800% Premium for Proximity to Central Park

Since Crompton’s study, mathematical analysis has become more sophisticated. The results are not as dramatic, but still positive. They often use a statistical technique called hedonic analysis that helps tell us how much of a home’s increase in value can be attributed to a particular factor, such as proximity to a park versus proximity to a park, say, downtown. Having a view of Central Park in New York City (as opposed to your neighbor’s air vent), for instance, bumps a home’s value by a whopping 800%. Furthermore, the 800% increase can be seen up to 1500 feet (about a quarter mile) from the park.

Role of Hedonic Analysis in Pricing

Hedonic analysis is particularly popular in real estate. It focuses on the things that people like most or least about property, in other words, what drives or hurts sales. It gages the influence of various pleasant and unpleasant factors on prices. For instance, proximity to the park might be visually pleasant, but noise created at the park might be unpleasant. The word “hedonic” comes from hedonism, the pursuit of pleasure. In this case, the focus on pleasure is as a component of price. The more pleasure people get from something, the higher the price it commands.

The newer studies also isolate price variance by the type of park (active-use, passive, greenbelt, near water, urban, rural, etc.).

Another review of scientific literature by Sarah Nicholls found that in Austin and Indianapolis, proximity to greenbelts accounted for 0%, 2%, 6%, 12% and 15% of average sale value. The variance resulted from different types of greenways, proximity to access points, maintenance, the beauty of vegetation, and the amount of regulation/protection.

Nicholls also found that, “In no case reviewed by this author to date has an open space been found to have a negative impact on surrounding property values.”

Nicholls concludes that it is possible, using hedonic analysis, “to place dollar values, verifiable using rigorous scientific techniques, on the economic contributions of …(green space) … amenities to local communities.”

Offsetting the Negative Influence of Harvey

As the county buys flood-damaged homes below Hamblen Road, I hope they create a greenbelt between River Grove Park and Edgewater Park. It would reduce repetitive flood losses to FEMA and the National Flood Insurance Program. It would protect the community from future development that could exacerbate flooding. And it would turn a negative into a positive impact for surrounding homeowners. The county estimates that its current greenway, which stretches from 59 to 45 along Spring Creek, could extend all the way to Tomball within four years. Connecting that trail to Kingwood’s network, could in my opinion, create the kind of high profile amenity that helps counteract any lingering negative influence of Harvey.

Personally, I can’t wait. It may be what I need to get this old bag of bones back on a bike again.

Posted by Bob Rehak on October 27, 2018

424 Days Since Hurricane Harvey